It's one of the most common savings questions in the UK: are Premium Bonds worth it compared to just putting the money in a savings account? The answer depends on how much you're saving, what tax bracket you're in, and — to some extent — how you feel about the lottery element.
This page runs the numbers honestly for different balances and tax situations, using current rates. The comparison calculator above lets you enter your own figures and see a direct comparison for your situation.
The Honest Comparison
At most balance levels and for basic-rate taxpayers with savings interest below their Personal Savings Allowance (£1,000 per year), a competitive easy-access savings account currently offers a slightly more predictable return than the expected value of Premium Bond prizes at the same balance.
The gap narrows considerably for higher-rate taxpayers, because their Personal Savings Allowance is only £500, and savings interest above that is taxed at 40%. Premium Bond prizes are entirely tax-free, so the effective return from Premium Bonds improves relative to a taxable savings account as tax rate increases.
For additional-rate taxpayers (earning over £125,140), there is no Personal Savings Allowance at all — every pound of savings interest is taxable at 45%. At this level, Premium Bonds almost always produce a better net return than an equivalent savings account, even when the headline prize rate is slightly below the savings account rate.
The Numbers at Different Balances
These figures use current rates — the calculator above will give you exact figures with today's numbers.
At £1,000: The prize rate produces expected winnings of roughly £44 per year at current rates. A competitive easy-access savings account at the same rate would give a similar gross return. For basic-rate taxpayers within their Personal Savings Allowance, the savings account wins slightly on predictability. Premium Bonds could win more or nothing — at £1,000 holding, the odds mean many months may produce no prize at all.
At £10,000: This is where Premium Bonds start to feel more meaningful. Expected annual prizes of around £440, entirely tax-free. For non-taxpayers or basic-rate taxpayers within their PSA, a savings account offers a comparable net return. For higher-rate taxpayers, the tax-free status of Premium Bonds starts to make a visible difference.
At £50,000 (maximum): At maximum holding, the comparison shifts more clearly in favour of Premium Bonds for anyone paying tax on savings interest. The expected annual prizes are substantial, entirely tax-free, and the capital is government-backed beyond the FSCS limit. For higher and additional-rate taxpayers, Premium Bonds at maximum holding are genuinely competitive with — and often ahead of — taxable savings accounts.
What the Numbers Don't Capture
The comparison above treats both options as pure financial instruments. There are a few things the numbers don't capture:
The lottery element. Some people value the possibility of a large prize — winning £1,000 or more in a single month — even though the probability is low. This has no financial value in expected value terms, but it has psychological value to some savers. If checking the prize draw on the first of the month is enjoyable, that's a legitimate reason to hold some Premium Bonds alongside a savings account.
Predictability. A savings account gives you a known return. Premium Bonds give you an expected return with significant variation around it. For people who need to know exactly what their savings will be worth at a specific point in time — saving for a specific goal by a specific date — a savings account is more reliable.
Access. Both are easy-access. Premium Bonds can be cashed in within a few working days. Easy-access savings accounts are similarly liquid. Neither has a meaningful advantage on accessibility.
A Practical Approach
Many people hold both — some savings in Premium Bonds, some in a cash savings account or ISA. This isn't a financially optimal strategy in the strict sense, but it captures some of each benefit: the guaranteed return from the savings account, the tax-free prize potential from Premium Bonds, and the diversification of not having everything in one place.
For anyone with savings significantly above the Personal Savings Allowance threshold, it's worth using the calculator to see the actual after-tax comparison with current rates. The answer changes as rates move, which is why the calculator uses live figures rather than fixed numbers.
For a detailed explanation of how Premium Bonds work, including the prize structure and how ERNIE selects winners, see our Premium Bonds Explained guide.
All Premium Bond figures are expected values based on the current prize rate — they are not guaranteed. Actual results vary by individual and cannot be predicted. A savings account gives a known return; Premium Bonds give a probable one.
Frequently Asked Questions
A Cash ISA is also tax-free on the interest, which makes the comparison different from Premium Bonds vs a taxable savings account. For most people, a Cash ISA with a competitive rate will offer a more predictable return than Premium Bonds, while still being tax-free. The comparison depends on the rates available — use the calculator with your Cash ISA rate entered as the savings account rate for a direct comparison.
Yes — there's no restriction on holding money in both. Many people do. The question is just how to allocate across them for the best outcome for your situation.
Yes. NS&I updates the prize rate in response to changes in the Bank of England base rate. The comparison calculator on this page uses the current prize rate from NS&I, which is updated on this site when it changes.
This is statistically likely at lower holding levels. With £1,000 held, the odds mean you might go several consecutive months without a win, even though the long-run expected return is positive. If this would concern you, a savings account — which earns interest every month regardless — may be more suitable for that portion of your savings.
Premium Bonds are backed directly by HM Treasury, not covered by the FSCS. This means there is effectively no limit on the protection — your Premium Bonds are as safe as the UK government. For savings in a bank or building society, the FSCS protects up to £85,000 per person per institution.
This guide provides general information and comparison estimates based on current published rates. Premium Bond prize figures are expected values based on current odds — actual results vary and cannot be predicted. Savings account rates change frequently. This is not financial advice.